Ryanair has warned it will not be able to cut spending fast enough if a drop in ticket prices accelerates this winter, reflecting the strain facing European airlines as terrorist attacks and volatility stemming from Brexit spook travellers.
The carrier, Europe’s largest discount airline, has been able to offset price declines during the summer season with cost cuts, while it has also been filling more available seating, chief executive Michael O’Leary told reporters in London yesterday.
Even so, there is not much the airline can do in terms of lower spending or increasing non-ticket revenue if fare declines continue to intensify, he said.
“We’re not yet revising the guidance,” Mr O’Leary said. “But we’re very cautious on the full-year guidance. If winter fares fall by more than 10% or 12%, we will have to review.”
European airlines have been scaling back earnings expectations in recent weeks as demand waned following terrorist attacks across the region as well as the British referendum in June to exit the European Union.
Ryanair said last week that it is seeing fares in its core summer period fall by 9%, sharper than the 6% to 8% slide expected at the start of the budget airline’s fiscal year in April.
Ryanair’s share price fell as much as 2.5% yesterday, before that loss pared back to nearly 1.6% at €11.99 yesterday afternoon.
The airline’s current forecast is for net income for the 12 months through to the end of March 2017 to rise to within a range of €1.38bn and €1.43bn from €1.24bn in fiscal 2016.
The scope of further fare cuts may be limited. Pricing late last year was already low as the carrier tried to win back customers deterred from travelling by terrorist attacks in Paris, Mr O’Leary said.
Last month, Davy Stockbrokers warned that low-cost carriers such as Ryanair will likely have to cut ticket prices further in order to prompt growth, noting that earnings downgrades have cost airlines across Europe 20% of their values during July and August.
Davy still believes that Ryanair’s share price should reach €14 and ranks it as the best stock pick in the aviation sector.
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